Posted by: Kenji Hall on July 11, 2008

NTT DoCoMo’s top brass must be kicking themselves right about now. Japan’s top mobile operator lost out to Softbank in the contest to sell Apple’s iPhone 3G, allowing the third-largest operator to bask in today’s hype and headlines. The iPhone’s arrival in Japan was front-page news in the evening editions of three of the country’s four major dailies.

But DoCoMo stands to lose more than just a little publicity. One fourth of DoCoMo’s 53 million subscribers in Japan account for 80% of the carrier’s data traffic, according to one industry insider who requested anonymity. Those 13 million, who spend a lot of time firing off emails and browsing the Internet, are DoCoMo’s best customers. They are the reason the carrier’s revenues aren’t declining at a faster rate. They also happen to be the most likely to benefit from the bigger screen and easy-to-use Net browser of an iPhone. Imagine if all 13 million of these DoCoMo subscribers suddenly decided to switch carriers.

Of course, Softbank’s gains wouldn’t have come cheaply. To sell the handsets for $215 apiece, Softbank absorbs about $400 of what it’s paying Apple, according to the financial daily Nihon Keizai Shimbun. That means for every 100,000 iPhones it sells Softbank goes $40 million in the hole. And while a line of people snaked more than a kilometer (about half a mile) from the doors of Softbank’s flagship shop in Tokyo’s Harajuku district, and there also were long lines at electronics stores in Tokyo and other major cities, it’s unclear whether the buying frenzy will last. After all, the iPhone is one model among many high-tech mobile phones already available in Japan. With an iPhone, you can’t watch digital TV broadcasts, and many Japanese Web sites, which rely on Adobe’s Flash software for animation, won’t appear as they were designed to.

Still, you have to hand it to Softbank’s CEO Masayoshi Son. He has pulled off any master marketer's dream. And the impact likely won’t be fleeting. With Apple’s help, Son (rhymes with “phone”) is stirring fundamental change in Japan’s mobile market. How? The iPhone marks a shift in the balance of power from mobile operators to tech manufacturers. Until now, it was operators that drove innovation in Japan’s market, telling phone manufacturers what features to pack into phones. Apple is signaling that handset manufacturers with must-have products can call the shots, too.

Son probably realized that if he didn’t do it, someone else would. In the fall, more phones that work like the iPhone but run on the Google-led Android software are on the way, and they are likely to add momentum to this trend. He’s also smart enough to see that most phones look alike and are equally user-unfriendly. So the Softbank brand benefits from the iPhone’s buzz, it gets a gizmo that differentiates it from the other two majors, and it lures a group of customers who are willing to pay a minimum of $75 a month for service at a time when most Softbank customers are paying half that.

It's not clear how DoCoMo squandered its chance to sell the iPhone. Months ago, DoCoMo confirmed that its then-chief exec, Masao Nakamura, had made several trips to Cupertino, Calif., in an attempt to court Steve Jobs. Then, inexplicably, in early June, Softbank announced that it had signed a deal with Apple to offer the iPhone. DoCoMo watchers say the carrier’s execs likely lost out because they tried to get Apple to agree to DoCoMo-branded services so the carrier would be guaranteed the right to offer services to iPhone users. To outmaneuver its rival, Softbank seems to have agreed to all of Jobs's demands. Yet Son is clever enough to have found a way to promote his other properties: Softbank has loaded the iPhone with a virtual button that zips you straight to the homepage of Yahoo Japan, which is owned by Softbank and is this country's most popular Web portal site.

Reader Comments

Marc McDonald

July 12, 2008 4:13 PM

One key point that I'm seeing in all the iPhone coverage is that Japan is actually coming out a big winner with the iPhone's success. After all, the most advanced, crucial components in the iPhone are all sourced from Japan (which is the only nation on earth capable of making these ultra-high-tech components). Although the media has claimed that the iPhone is "made in China," the reality is that all the Chinese are doing is assembling the iPhone (from high-tech components sourced from Japan).

Damien Duhamel

July 12, 2008 10:30 PM

The i-Phone is unlikely to have any disruption impact on the Japanese. NTT knows that and left the hassle and the risks of launching the i-Phone to someone else.
The i-Phone is anything but revolutionary in Japan. Its features have been available in the market for years and to make it worse the bulkiness of the i-Phone makes it anything but "kawai-friendly" and Japanese girls are not likely to switch to a phone that can't play TV and cant be used to purchased goods like a credit card.
True, till now there has been an incestuous relationship between the Japanese carriers and the manufacturers which while not preventing innovation, it has not really pushed manufacturers to be very daring. The i-Phone launch may change that momentarily, however the i-Phone will never gain a meaningful market share in Japan, and foreigners will once more understand that what may be seen as innovative overseas maybe seen as deja vu in Japan.

Katherine mrak

July 13, 2008 1:19 AM

Konnichiaw!,
Please send my son/musuko a booklet on operating the new I-Phone he purchased onJuly,11th,2008 printed in ENGLISH language so he can use his phone correctly(He loves his phone,very much Gozaimas! send to E-mail below:
atrues79@gmail.com
THANK YOU,ARIGATO GOZAIMAS
KATHERINE MRAK

Oh Blah Dee Blah Dah

July 13, 2008 9:34 AM

ATTN: Damien Duhamel

RE: "The i-Phone is unlikely to have any disruption impact on the Japanese."

Incorrect.

The Japanese are design fanatics and will be enthralled by the multiple-language keyboards on the iPhone. The Japanese will be able to quickly switch the keyboard to English, Chinese, and Japanese as needed. The Japanese, ESPECIALLY, as an international trading nation, will appreciate and benefit from the impact of this capability.

=====================

RE: "Its features have been available in the market for years"

Incorrect.

The Apple iPhone unique "features" are the OS X for the iPhone and the wonderful UI (User Interface). These two iPhone "features" do NOT exist anywhere else in the WORLD.

=====================

RE: "Japanese girls are not likely to switch to a phone that can't play TV and cant be used to purchased goods like a credit card."

Incorrect.

These two features can be added as the iPhone software is localized for the specific needs of nations. In case you haven't seen it yet, look at the NEW "remote" capability of the 3G iPhone.

guy

July 13, 2008 10:59 PM

I'm a SoftBank customer, and I can tell you I wouldn't be in the market for an iPhone unless it was setup with one-seg TV or wallet phone featuers. The 3G version is a mere foot in the door.

But my Sharp already plays music, has internet/e-mail/SMS, allows me to watch TV on a mini Sharp Aquos screen, and allows me to do touch-and-go train riding. True, the screen may be smaller than an iPhone's, but at least it's a decent size. What's the benefit?

Unless Apple learns to adapt to the Japanese market, or unless there's a hoard of Apple otakus out there willing to give up standard features, this whole iPhone in Japan thing might be somewhat of a flop.

P. Schmidt

July 13, 2008 11:28 PM

RE: (from high-tech components sourced from Japan)

Dear Marc Mcdonalds, I beg to differ/disagree on the "high-tech components sourced from Japan" claim, here are the list of main components used in Apple iPhone 3G.

Ray

July 14, 2008 11:39 AM

Please don't forget one of the most important fact is iPhone can download music, video and application from iTunes store. This is an extremely important link.

And this is exactly why the iPod beat other mp3 players by miles. I have an iPod touch and the interface is much better than any other 3G phones I have used. Is one-seg TV important, maybe. But you can also access youtube anywhere you go. The day of scheduled TV boardcast is slowly fading in my opinion. The on-demand service or video will be the upcoming (if not already) video watching habit.

This move by Softbank is not merely about launching iPhone. It is also about Mr. Son making a name for his company, to establish Softbank as a respectable player in the Japanese mobile market. This is how he plans to tackle DoCoMo and Au.

Is it a good move? There is no doubt in my mind.

Kanji Susumo

July 17, 2008 1:57 PM

ATTN TO Oh Blah Dee Blah Dah
You probably dont know Japan much. I can't agree more with Damien's comment. We are not likely to see Japanese females starting to download, install and set up TV plug-ins software. This will simply not happen.
In about a year from now everyone in the Japanese Market will have forgotten the I-Phone. This phone does not have revolutionary features that will get the Japanese people to dump their current phones and switch to iphone. Maybe unlike in the US, one size does not fit all.

Tony Wong

July 18, 2008 1:38 PM

Why watch local TV on your mobile when you can rent the latest blockbuster movies from the iTunes store and download them onto your iPhone?

Not forgetting a talented worldwide community creating a diverse amount of useful applications for mobile use via the SDK (Software Developers’ Kit).

And isn’t the iPod the most popular MP3 player for the Japanese market? The iPhone will simply be an extension to this success.

Annoymous Insider

July 27, 2008 12:16 PM

I can tell you, from the inside, that all three of the major carriers, and at least the handset manufacturers that I work with personally, have been watching the iPhone with extreme care over the past couple of years. Not one of them has been talking about features. The only thing they are interested in, is user experience.

It's not so much that you can touch the screen and it moves. It has a lot more to do with consistency. The iPhone, like windows or osx, has a consistent look and feel across the board, and most Japanese phones, if you haven't noticed already, have a completely different set of softkeys that you have to "re-learn" every time you get a new phone. On top of that, each application in the phone itself, looks and behaves differently from one another.

Of course, windows mobile (and symbian to some extent) already supply this to a degree, but it is just plain ugly in comparison to apple's fluid animations and gorgeous UI. And _this_ is the thing that is driving everyone back to their respective drawing boards.

Within the next year or so, as a direct result of the iPhone, it is extremely likely that you will all witness a massive shift in mobile technology (in Japan at least), all based entirely around improved user-experience.

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Bloomberg Businessweek’s team of Asia reporters brings you the latest insights on business, politics, technology and culture from some of the world’s biggest and fastest-growing economies.